Bitcoin soars to nearly three-year high in wake of China volatility

NEW YORK (Reuters) - Digital currency bitcoin on Tuesday surged to its highest in nearly three years as investors bought the asset in a supposedly safe-haven bid in the midst of volatility in the Chinese stock market.

A sticker that reads "Bitcoin accepted here" is displayed at the entrance of the Stadthaus town hall in Zug, Switzerland, August 30, 2016. REUTERS/Arnd Wiegmann

On Tuesday, bitcoin climbed as high $793.27 BTC=BTSP on the BitStamp platform, its highest since February 2014. Since August this year, bitcoin has soared 70 percent.

Darin Stanchfield, founder and chief executive officer of bitcoin wallet KeepKey said bitcoin has benefited from uncertainty in the Chinese stock market.

Mainland Chinese markets have been on the defensive the last two days due to a widely-anticipated interest rate increase by the Federal Reserve on Wednesday. Chinese stock markets though did finish higher on Tuesday.

“Bitcoin has become a safe haven, though not like a mainstream safe haven. We have been seeing lots of volume from China and also India,” Stanchfield said.

According to digital currency research firm Coindesk, 95 percent of global bitcoin trading is done through Chinese exchanges.

Bitcoin is a virtual currency that can be moved money around the world quickly and anonymously without the need for a central authority. That makes it attractive to those seeking to get around strict capital controls in countries like China.

While China currently dominates the space, Chris Burniske, analyst at exchange traded fund manager ARK Invest, noted that bitcoin trading in Venezuela has also soared, rising seven-fold this year as inflation surged and the bolivar currency collapsed.

Analysts said the groundwork for bitcoin gains was laid in July this year in a process called “halving”, where the rewards offered to bitcoin miners shrink. That has constrained the supply of the digital currency.

Bitcoin relies on so-called “mining” computers that validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes. In return, the first to solve the puzzle and clear the transaction is rewarded new bitcoins.

Before the halving in July, the miner’s reward was 25 bitcoins. The bitcoin program was designed in such a way that it cut the reward for miners in half every four years, a move that was meant to keep a lid on inflation.

“If you look back a couple of years when the mining rewards were halved as well, it did take a few months before the effect of the mining rewards kicked in,” said KeepKey’s Stanchfield.

Stanchfield believes bitcoin could exceed the record high set in 2013 of more then $1,100.